Annual reflections of 2021
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2021 was an exceptional and rough year for Chinese tech. Things were fixed, but nothing was solved.
Rather than the protracted malaise that pervaded the faceoffs between tech giants and their proxies for much of the late 2010s, 2021 scattered the entire game board. With that, uncertainty defines the start of 2022. Boundaries have been redrawn, directions reset and organisations reformed. As China steers itself towards a new century where higher-quality growth is prioritised over fast growth, 2021 marked the end of an era.
The regulations introduced by the Chinese government in 2021 aimed to create balanced growth by unbalancing incumbent private actors while trying to stimulate future growth by altering the status quo. They're eggs on a plate, but do they an omelette make?
Excuse my attempts to wax poetics, I never intended to become a Chinese policy analyst or put my development degree to use. But the 2020s is when we expect the unexpected, so let's try to make sense of it all.
While COVID-19 raged outside the Great Fire Wall, Chinese regulators timed their drops like NFTs, each time setting commentary ablaze. It was a live-action version of the unexpected hanging paradox. Each reform implemented had been long talked about, be it on education, housing, demographics or anti-monopoly, but it was always surprising when it finally happened. While half of the list isn't even strictly about technology regulation, everything has a tech angle in an era where software has eaten the world.
As narratives are pieced together looking backwards, 2021’s turmoil has a particular way of obscuring the sequence of things. Traffic dividends and growth already started drying up around 2017, which were drivers of anti-competitive practices from tech giants. Video platforms were bleeding money from day one and never managed to claw their way to positive contribution margins. Innovation was stifled due to VCs and founders’ skittishness around big consumer tech platforms' ever-expanding lines of business and ability to race to the bottom with subsidy wars.
It’s been a perverse turn of events as the 2021 tech platform regulations are made the villain in shouldering the existing sins of Chinese consumer tech. Things were not roses beforehand, as a glance through my 2020 archives can attest to. There was a reason why the tech platforms were growing so strongly when the market indicators looked so saturated. Money from value creation and value extraction gets counted the same way. What the regulations did was bring narratives into sharp refraction. When a brilliant idea is done by China, it is the Western perception of China that remains intact.
The Chinese tech narrative shift was also internal. For Chinese tech players, 2021 felt like the year that it understood life never gives anything for nothing, and that a price is always exacted for what fate bestows2. Every notification pushed to gain mass data, and every subsidy war had accrued a debt, and it came time to pay. The short-term get-rich schemes exemplified by fengkou would be no more, relics of a bygone era. The days of hiring to further vanity headcount figures because cash flowed freely were limited. When this new reality clicked for billionaire founders is debatable, but 2021 saw the quiet exit of Pinduoduo’s Colin Huang, Bytedance’s Zhang Yiming and Kuaishou’s Su Hu. As the popular saying goes, "there was no Jack Ma era, only an era’s Jack Ma."
The loss of grandeur for Chinese consumer tech has led to a series of directional company reorgs and headcount cuts. These tech companies once again assume their roles as institutions that support societal development for the greater betterment of the Chinese populace. I wouldn’t be too quick to dismiss these as mere lip service PR maneuvers. DiDi cleaned up the Chinese grey cab market, Tencent and Ant Group built out digital government and banking services, Meituan is the de facto food safety commission. Tech giants are being asked not what their country can do for them but what they can do for their country.3
The fengkou is dead. Long live the fengkou
While the canopy of the Chinese tech ecosystem took a trimming, I would be remiss to say that Chinese tech has a dimmer future. My view is that the Chinese consumer tech giants were innovative and trailblazing in their days, but similar to FAANGs, their dominance has increasingly ate away at consumer and SMEs' welfare. Tencent and Alibaba’s strategic investment strategies sucked attention in the startup funding space into uneasy corners.
Even in 2020, VCs were looking further afield into newer sectors such as B2B, healthcare, agriculture, education (RIP), and DTC as consumer tech became increasingly saturated. 2021 saw the rapid acceleration of the shift in investment patterns. According to data from ITJuzi, the hottest investment areas for the last seven quarters (as of Q3 2021) have been life sciences, Medtech, new energy, automotive manufacturing, integrated circuits and lifestyle services (mostly restaurant chains). A glance at the investment profiles of the top three VCs in terms of volume (Sequoia China, Tencent investment and Hillhouse capital, respectively) reveals B2B services (a catch-all for SaaS, B2B software, marketplaces and services) and Medtech to be top investment fields.
It’ll take a long time for these new seeds to grow, and god knows software has had enough false starts in Chinese tech. But with the lack of quick money on the horizon, Beijing’s new stock exchange for SMEs as a liquidity event, and enterprise customers facing the slope of demographic decline, could 2021 be the year it finally turns for Chinese software? It’s a big bet for sure, and it’s not like the policymakers left the VCs many other options.
I don't want to lean in, I want to lie down
When the music stuttered for Chinese tech giants, the tech workers were already on the verge of lying flat, as 2021 was a year when the vernacular framework of involution was ubiquitous. The economy in general and specifically their sector staggered, and a generation that grew up in a system where they believed anyone can make it admitted that not everyone will. The post-80s and post-90s white-collar workers are trying to make peace with ordinariness. That the test scores which gained them university places will not guarantee socially mobile lives. Though they worked in entertainment-filled tier-one cities, there was scarce time to indulge beyond working 996 hours. The success checklist includes owning a house and having children, goals which they feel are further away with each passing paycheck. The reality for millions of migrant workers is now their reality, and maybe the difference between their roles was not as different as they had once thought. Perhaps the cure isn’t to lean in; it’s to lie down.
The passive resistance of lying flat has led to much soul-searching. Some have decided to go into the stable civil service; others are trying to find new meaning in their lives apart from the apparent signifiers of success. The curveball from all of this might be that the ‘lying flat’ generation will be the generation to create great art (and a lot of yoga teachers, stand-up comedians and life coaches). After all, once they step outside the narrow confines that dictate the winners of finite games, there is a whole world outside.
What is stability?
2021 marked the start of two new policy cycles, the 14th Five Year Plan and the next centurium of the CCP. While the first was about economic catch-up and poverty reduction, the next will focus on high-quality development.
A 10,000 word op-ed in People’s Daily on 20th December4 laid out the vision for the high-quality development era, which sounds remarkably like the doughnut economics theory popular in the early 2010s among development circles. Namely, sustainable growth focuses on neutral carbon emissions and equitable income distribution. While mentioning how the new ideology focus (innovation, urban region coordination, carbon-neutral development, the opening of the economy and societal distribution.) and highlighting how technology innovation, SMEs and dual circulation will drive the economy forward, the op-ed repeated the quest for ‘stability’. It was not a standalone incident. In the 6th Plenum of China summary, the word ‘stability’ was highlighted 24 times. Given the events of 2021, it's easy to think the Party was being ironic.
To square the circle, it seems that the policymakers see the reforms and regulations in 2021 as part of a longer-term rebalancing act. China’s future is in the physical world. It makes things, living in the metaverse is best left to the west. The virtual shall not decouple from the real. Quality of life needs to increase alongside workers’ productivity. It is inequitable to have significant inequality and wagmi into the future. China Inc is trying to implement the startup doctrine of “what got you here will not take you to the next level without big changes”. Stability will come with changes rather than without.
Alongside China and the world, Chinese tech will be finding a new normal in the year ahead. What will come in 2022 will be some calm after systemic surgery, but I expect more regulations and direct implementations to make sure the changes take hold. For a heterogeneous country such as China, it is easier to be absolute in policy changes.5
It might be perverse to say this after the year we’ve had, but I’m excited for what next year brings. Don’t get me wrong, I spent large parts of 2021 trying to delay checking the news. One of my life summaries from years interacting with startups and observing the older Chinese generation is that opportunities are in the grey spaces.6 But right now, the field is open. The tech giants’ valuation are shot from a year of terrifying English news coverage. The software trend is on its way (for the tech giants too). There are unemployed tech workers from big tech trying to find jobs and they’ll land in startups. I know it can always get worse (and it will get worse a bit this year before it gets better), but from my vantage point, there are more upsides when there’s less to lose.
Let the bullet fly callback y’all, canon continuity matters to me
Referencing Stefan Zweig
They do well financially from the exchange though, or at least have done historically. Hardwork in exchange for market share.
I knew it was important because they made a lot of videos about it. How’s that for policy analysis?
I might be wrong here, if you’re policy expert and want to tell me how I’m wrong, reply to the email.
I speak from the privileged position of not having interacted with Edtech and having built up some career capital in software.